Scentre Group

SCG Details

Notice of Shareholders: Scentre Group (ASX: SCG) is engaged in property investments by owning and operating a portfolio of living centres in Australia and New Zealand.

• Recently, the company announced that Pinnacle Investment Management Group Limited and its subsidiaries ceased to be a substantial holder of the company on 14 July 2021.
• In another update, the company announced that Vanguard Group (The Vanguard Group, Inc., and its controlled entities) a substantial holder of the company, decreased its voting rights from 11.279% to 10.124%.

Managerial Changes: On 28 May 2021, SCG appointed Ilana Atlas to the Board, effective immediately.

Key Findings of Q1FY21:  

• Rise in Gross Rental Collection: The company reported a gross rental collection of $802 million in the YTD 30 April 2021, depicting an increase of 27% compared to 4 months to 30 April 2020.
• Increase in Retailer In-Store Sales: During the quarter, the company witnessed a growth of 6.3% YoY (Specialties) across regions for In-store sales. Similarly, the company also saw growth among most of the retail segments in its total portfolio in Q1FY21.
• Improvement in Customer Visitation: SGC’s customer visitation witnessed an improvement in 1QFY21. Notably, at the end of April 2021, total portfolio customer visitation was equivalent to 93% of 2019 levels.
• Deal Wins: In 1QFY21, the company completed 588 lease deals, which consisted of 236 new merchants, launching 35 new brands to the portfolio.

Gross Rental Cash Collection (Source: Analysis by Kalkine Group)

Key Risks: 

• Liquidity Risk: There is always a risk for the company to get failed in meeting its financial obligations as and when they are due to pay. The company operates in multiple countries.
• Forex Headwinds: Any severe movement in foreign exchange prices may lead to financial losses for the company.
• COVID-19 led uncertainty, and growing competition from pure-play retailers remains potential headwind.

Outlook:

• SCG reconfirms that it anticipates distributing a minimum of 14.00 cents per security for FY2021. Further, the company expects to grow its distribution in future years.
• The company’s $55 million entertainment, leisure, and dining sector growth at Westfield Mt is continuing to progress well and is expected to open at 2021-end.
  

Valuation Methodology: P/E based Relative Valuation Method (Illustrative) 

Data Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: In the last one month, SCG has been corrected by ~9.9% and by ~8.3% in the last three months. The stock is currently trading below the average 52-week price level range of ~$1.88-~$3.13. We have valued the stock using the P/E multiple-based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). We believe that the company can trade at a slight premium as compared to its peer median, considering improving customer visitation, and stable fundamentals. For this purpose, we have taken peers Charter Hall Group (ASX: CHC), Shopping Centres Australasia Property Group Re Ltd (ASX: SCP), GPT Group (ASX: GPT), to name a few. Considering higher gross rent cash collections, reinvestment strategies, improved customer visitations, an expectation of higher dividend distribution in FY21, and valuation, we recommend a “Buy” rating on the stock at the current market price of $2.50, up by ~1.214% as on 27 July 2021.

SCG Daily Technical Chart, Data Source: REFINITIV 

Note 1: The reference data in this report has been partly sourced from REFINITIV.  

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above. 

Technical Indicators Defined:-

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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